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> The alternative perspective here is that obviously money supply and inflation is correlated, but for exactly the opposite reason: when prices go up without re
by Geee 5y ago
> The alternative perspective here is that obviously money supply and inflation is correlated, but for exactly the opposite reason: when prices go up without real values changing, people are still going to need the same real stuff, so banks and governments will print more money so people can afford the things they need.
Clearly untrue. It can be reasoned from first principles that expanding money supply leads to rising prices. Furthermore, if governments answered price inflation by expanding money supply even more, it would lead to hyperinflation.
- kqr 5y agoSimilarly, it can be reasoned from first principles that any other cause of a decreased demand for a currency leads to rising prices. I'm not disregarding one explanation in favour of others, I'm just saying that what I've seen in terms of evidence for the default explanation is far from conclusive as far as I can tell. More lending in response to inflation does sometimes lead to hyperinflation! That's how little Weimar and his printing press got into such a pickle. But in the presence of other corrective feedback loops, it doesn't have to.